May Week 1- Regretting doubting #UPGS

Regretting doubting #UPGS Portfolio Review

Portfolio ended flat on week and behind the ASX.

Weakness in the growth / technology stocks and strength in cyclicals. Commodities/Energy have driven the rally in FTSE from what I can tell with general recovery in the cyclical sectors. 

Updates from companies were neutral to positive with Boohoo being the only company that reacted negatively to earnings.

Portfolio has very limited (near zero) pure play exposure (ex AAZ) to Mining/Energy ex some FTSE 100 passives.

Remember November 2020 - either accept underperformance or get some exposure through a passive vehicle (XLB / XLE) / adding to FTSE ETF or BRWM or another Investment Trust. 

Avoid the miners being talked about on twitter / other areas - not a sector you understand. 

THIS IS WHY YOU HAVE NO EXPOSURE!

The commodity charts / rally in companies / BRWM and such like looks unsustainable to me.

Behavioral note:

Concern about Calnex given report by Ciphersense. 

Completed the review and reached conclusion to hold pending results, however, were thinking whether it is worth a reduction. As the share price rose at the end of the week, your concerns dissipated, even though position size has become more of an issue. HOW BIZARRE!!

Transactions

Reduce DUKE 

Planned sale (moving holding to SIPP so selling amount purchased in SIPP

New ELCO

Have monitored on the back of announcements on 29th March and 30th April - took starter position. Provides software to the construction & building management sector, a sector that is booming. The company has a good track record of growing the business without dilution & excellent quality metrics, in particular very high gross margins (above 80%) and has grown without increasing its cost base suggesting positive operational leverage.

2020 growth was negative/pedestrian but hopefully get back on improving trajectory. Half on half & quarter on quarter growth signs are positive, with some upside to forecasts

The sector to which it provides software is performing strongly. New management team have reorganised sales/marketing function (reducing costs) - growth ambitions to expand in sector & geography, cross sell existing suite of products across customer base and look at other industry verticals. Relative to the valuation of direct peers (internationally) & sector such as Nemetschek & Autodesk, it is cheap / fair. 

Portfolio Risers

UPGS up 17.5%

• Seemed to get a reaction to the ahead of trading update - quite the rise, gapped on the day of results & has sustained in week. On rising volume! 
• SHAME THAT YOU REDUCED, HOW WRONG. 
• Correct on margins, but wrong on sales growth & Mgt Execution in managing the impact! 
• Wonder what price you will buy back in at - quality compounder with growth runway, and operating margins trending the right way.

REAT up 8.9%

• Think a case of continuing momentum - as market cap rises appears on more peoples radars??

IGP up 8%

• No news that I am aware of - maybe tipped. Very illiquid and felt like there was some position building over last week or two  (something happening in the words of dosh100). 
• Rally happened at the end of the week - Friday.

AAZ up 7.2%

• Responding to the Gold price - Gold seems to have broken down trend (getting support and rallying during week and then jobs miss). 
• Shortages/price rises everywhere but not jobs suggests stagflation helping gold/gold miners?

BATS up 5.8%

• Recovering after the fall last week on the Menthol - hideously cheap as long as you ignore regulatory risk & sin stock

Portfolio Fallers

TM17 down -9.7%

• A few PIs seem to have been selling their holdings/reducing - who are well followed - Gaming Q1 grew 25%, Nintendo & ATVI strong results, they have made big investments. 
• Might not be right time for market at moment, but like the space. 
• Valuation is problematic, however, this can be one to add if valuation comes in.

GROW down 9%

• Again, think this is a case of people leaving Tech/high growth. 
• Price to book approaching 1 again and positive portfolio developments it appears.
• Lets have a look at full year results. AUGM also had some weakness.

BOO down 7%

• Weakness on results and has broken triangle support, however, previous resistance (or slightly below respected and putting in hammer at close of week (EBT Buying?) but then sellers back on Friday. 
• Trend is down. This can become a core holding but given size, need to do something with 
• More towards Add than Sell - hopefully the technical weakness can continue a while.

TPFG down 6.1%

• Pulling back after a very strong week last week.

Cursory Market/Macro Observations

A slow start to the week and a dip esp after Janet Yellen comments around interest rates & FED talking about leverage in system.

So much leverage - creating a lot of volatility - feels like the whole thing is on a ledge & any wind could push it over.

Then after jobs miss, it recovered in the bubble/exponential growth sectors. 

From technical perspective, did not get back anywhere near their previous highs & rallies seem to be sold into - Sell the Rip!

Fed liked the jobs report as it removes pressure to hike - is a 15% reduction in equity markets or even a crypto bust (for lack of a better word) - are there impacts. 

Not sure how much should be read into one jobs report or if it matters in the grand scheme of things.

As far as CoVid is concerned, seems a strong recovery in west where people getting vaccinated and Europe is sorting itself out. 

That said, drama in other countries & feels risk is being ignored, like it is just in China last year. 

That said, all risks are being ignored!

Relies on vaccines & effective borders - international travel is risk. Also, India likely hitting consumer staples sector, albeit marginal given diversification of revenues

Ugly results from IAG & IHG was not that great either - surprised how resilient the sector is.

Rally being driven by miners and to a lesser extent energy - have no exposure to this sector other than AAZ (with good reasons).

Maybe need to allocate something but concerned about chasing - TRANSITORY? 

Commodity/Miner charts don't look sustainable (to me). 

Feels like momentum & leverage taking over??

Updates & Results

GetBusy 6 May 2021 - +ve to neutral - CFO engagement if +ve

• Revenue up 10%, recurring revenue up 12% on PY, slight slow down on PY Half on Half and FY revenue of 15%
• Suggests current revenue for Half Year 7.7m, so in line. Net cash at 2.1m (vs 2.2m at FY)
• SmartVault growth at 44% increase in new business, driving growth in recurring revenue (higher value/customer) - should improve GM
• One significant new customer in the solvency space for Virtual Cabinet (older business), should add to recurring revenue for FY.
• Growth slowing down, however, Smart Vault seems to have accelerated somewhat & Getbusy is just starting to gain traction.

EMIS 6 May 2021 - Neutral - Need to deliver the growth opportunities they talk about

• In line with expectations as per 18/3 March results, continued investment in product roadmap & drive efficiencies / higher growth in 2022 based on developments/momentum from 2021.
• Monitor the product development side - if can gain traction in the private sector and/or international, there is a substantial opportunity otherwise, within the NHS likely be a quiet plodder, but not sure it will have the growth associated with high returns.

SOMERO 6 May 2021 - +ve - But very cyclical and once a warehouse built, won't build again. 

Will need to sell at some point, but for now adding cyclical exposure & very good dividends

• US is booming (Red Hot as referenced in the Berkshire Hathaway AGM) and starting to see recovery in Australia & Europe. 
• Upgraded guidance from mid single % revenue growth ($88.6m - therefore $93m) to $100m revenue for FY, EBITDA expected to be $31m from previous guidance of 26m - cash at year end around $30m.
• Momentum from Boom Screed (US Warehouse/logistics construction) and across product portfolio.
• New products from 2020 expected to contribute meaningfully to growth & adding to product portfolio, (plywood sheet stripping) & one more new product by end of 2021 coupled with investment in sales/marketing - Looking good.

Tritax Bigbox 5 May 2021 - Neutral - like that they can build their own as opposed to purchase at high prices

• Further downward pressure on prime yields, demand for warehousing BOOMING - See SOM!
• Vacancy at 4%, rent collection at 98 - 99%. 37% of portfolio due for rental review (hoepfully some good uplift on market based)
• Take up lower because there is very little available, as a result of increase in investment, take up will improve later in year
• Development pipeline will add to rent from H2 and H1/22 + Davenport acquisition. Getting pricey/booming but paying nice dividend at 3.5% 1.1x book not outrageous given sector/tenant profile & inflation linked income.
• Expect some increase to NAV just from valuation uplift as well

Boohoo 5 May 2021 +ve long term but higher cost structure has hit margins. 

Technical weakness might create opportunity to add and make core - currently on base case, need multiple to sustain

• Revenue growth 41%, UK 39%, International 44% - GM 54% (improving) EBITDA margin 10% flat (Covid costs, investment & acquistions)
• Guiding 25% growth for current year, 20% organic and 5% from new brands. Margins under pressure, returns rate will increase and higher carriage/freight costs
• Test & repeat model. More competition as benefit from lockdowns, however, core categories should benefit from people going out more.
• Margin to be hit by 50BPS - investment in new brands & ~ £150m CAPEX (investment in facilities/automation - building a business for the future) + 72m in West End Head Office.
• Reiterate medium term guidance of 25% revenue growth and ADJ EBITDA at 10%
• The buying of head office is very owner manager esque - long term thinking